Stark warning

Economy ‘will take years to recover from virus’

Graeme Roy

Graeme Roy: unlike anything we have seen since World War II (pic: Terry Murden)

Hopes that the coronavirus will have only a limited hit to the economy’s long-term productive capacity now look ‘overly-optimistic’, says the head of a leading research body.

In a stark warning of a long and costly downturn, Prof Graeme Roy, director of the Fraser of Allander Institute, says the crisis will reshape the business landscape.

He says: “The scale of the shutdown in our economy is so large it will take months, if not years, to recover. Key now will be ensuring that long-term scarring effects of any recession can be mitigated as much as possible.

“The economy that emerges from this, from the shops on our high street through to day-to-day working practices, is likely to look quite different.”

In its latest Economic Commentary, the Institute says the virus outbreak represents an ‘unprecedented shock’ to the global economy that will trigger a recession, but that the collective efforts of business and policymakers is to ensure that this is – as much as possible – a ‘v-shaped’ recession, with activity picking-up once the public health crisis passes.

Professor Roy, says: “The large-scale mothballing of our economy in response to the public health emergency is unlike anything we have seen since World War II.

“Businesses and policymakers always knew that a global pandemic represented a major risk to our highly integrated global economy. But the pace at which this crisis has escalated has caught many off-guard.

Champagne bar

Bars and leisure facilities will be particularly exposed

“Assuming that the public health emergency will pass in the coming months, the hope of many is that that the economy should come out the other side with only a limited hit to its long-term productive capacity.

“But this is looking increasingly overly optimistic.

“The economy that emerges from this, from the shops on our high street through to day-to-day working practices, is likely to look quite different.”

Particularly exposed are services relying upon ‘social spending’, such as the tourism and hospitality sector, including, hotels, cafes and restaurants. This may have a disproportionate impact upon rural communities in Scotland, where smaller businesses and high numbers of self-employed people are prevalent.

Mairi Spowage, deputy director of the Institute, added: Whilst there remain issues to be worked through, including how some of the government support schemes will operate in practice, so far the policy response has been well received. But things are clearly escalating quickly and changing day-by-day.

“The current situation – almost unthinkable just a few weeks ago – of the State stepping in to support wages will not only help families and businesses at this crucial time, but will act as an important bridge to support the recovery when it comes. 

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